The Possible Effects of the Current Socio-Political Situation in the 2016 World’s Economy
Political circumstances deriving into economic effects and vice versa is a truth that is becoming more and more evident.
The almost imminent collapse of Venezuela as a viable state under the government of the inheritors of chavismo, which had as efficient cause the fall in oil prices, could revert if the advent of a new political order returns national and foreign investors’ confidence in the country, even if the recovery of oil prices is not immediate nor assured.
The recent crisis between Saudi Arabia and Iran, with the generating of political and religious alliances of Sunnis and Shiites, could, in the worse case scenario, degenerate into a major conflict between states, most of them oil producers, which would generate uncertainty in the maintenance of the floor of world production, and an increase in its price. Nevertheless, meanwhile, as the tendency towards high extraction prevails both on the part of Saudi Arabia and Iran, the price remains low.
The economic recovery of the United States has given rise to an increase in its interest rate, which will be progressive. This fact will possibly have many effects: it will make hot capital migrate to said country, which will have a negative impact in the future credit capacity of the banks of those countries which at a certain moment benefited from the circumstance of being able to offer better rates to hot capital. On the other hand, many emerging countries will suffer – among other factors - of the higher cost of their debt in US dollars due to the increase in interest rates in said coin, and the probable delay or default in payments will prolong the issue to governments and their ability to capture national or foreign financing. The rates on sovereign bonds of emerging countries will increase but their corporate stocks will suffer.
The deceleration of China’s economy has had the effect of diminishing the demand and prices of agricultural, food, mineral and other products exported by various Latin-American countries. Before this phenomenon, many of these countries had delved into a development model in which the State was the main engine, even to the exclusion of private entities, mounted on a propaganda machine and demagogical discourse which disparaged them and which generated distance and lack of trust. Now the coffers of these states are emptying and those political projects are stumbling. It seems that the peoples of Venezuela, Argentina and Brazil are changing course and similar winds are felt in places nearby. There is a shift in the Latin American political scenario. Its probable that for this reason there is an improvement in the country risk, which would compensate the negative effects of the decrease in the price of their primary export products.
Population growth in the developed countries is very low and even negative in some places. The demands of Japanese and European workers towards their governments so that they maintain migration controls to protect their work sources are colliding with the known fact of the aging of their populations and consequent decrease in the financing of their social funds. This is a scenario in which less and less people will have to maintain more retirees. Even though applied technology will be more efficient and productivity will be greater, many projections point out the need of inoculating young population into the mass of active workers to help in maintaining the retiree population, which will also have more longevity thanks to developments in medicine. It is logical to suppose that in the immediate future, pressured by the underlying financial reality, the migratory policies of these countries will generate openings in the labor field. The influx of migrants could, in the medium term, stimulate consumption and therefore invigorate the productive apparatus, which would generate a bigger economic growth.
One of the effects of the world’s 2008 Great Recession was the almost total destruction of the economy of some of the peripheral European countries, such as Greece, and the impoverishment of countries such as Spain, France and Italy. In their respective recuperation processes, with diverse hues, [these countries] have had to deal with severe austerity measures, diminution in quality of life, unemployment, loss of social achievements, etc. The transit through these circumstances is changing the European political board. Meanwhile, Spain has two new actors in its scene (one of them of an ideological extremism that some catalog as fundamentalism, renegade, antiestablishment) which has ended the bipartisanship that conducted this nation since the end of Franco’s era, and which allowed it to incorporate fully into the rhythm of the rest of Europe. In France, the ultranationalist tendency, the discourse of which is the rejection of any foreign custom, religion or race, has gained a foothold. These political novelties, if they took root, could be very prejudicial for export commerce and the expansion of their financial services offer, as well as for receptive tourism, which are important components of these countries GDPs.
In sum, the beginnings of 2016 bring good auguries and ominous presages. As before, attention must be given to the changes as they happen.← Back to News Releases